Takeaway: We’re adding LB to the top of our Vetting List. Weighing the puts and takes.

We’re adding LB to our Vetting List. We think that it’s very likely to turn out to be a solid idea – it’s just not clear to us at this point if it will be a long or a short.  As the company comes off a year with virtually no earnings growth, there’s far too much speculation that FY2017 will be yet another.  It’s at peak productivity, peak margins, cycle-peak multiples on almost every metric, with only 3.7% of the float held short.  Add on questions surrounding changes in distribution of the Victoria’s Secret catalog – which is potentially disruptive – and we may very well see numbers come down again when LB reports earnings on May 18th.  On the flip side, brands matter in this space, and VS is arguably one of the top 3 brands in all of retail. Its product is extremely stable, steady, and almost always relevant to any consumer (in every gender) globally. Management has also earned the benefit of the doubt given its track record. 

But with all that said, in order to make a real call on LB, we need a real edge on some of the key value drivers, which we think will come in part with a detailed consumer survey of brand perception, and consumer buying patterns.  We plan to have this complete by the time we come out with our LB Vetting Book in the days before earnings. This book will, as the name suggests, Vet all the relevant puts and takes of the LB investment case. If we come away with a particularly strong opinion, what starts as a Vetting Book may evolve into a Black Book.  Stay tuned.

Details to come.

LB | Adding to Top of Retail Vetting List - 4 25 2016 Idea List